Question: A mining COMPANY intends to exploit a deposit by acquiring the property rights from an exploration company that has carried out the geological investigation

A mining COMPANY intends to exploit a deposit by acquiring the property rights from an exploration company that has carried o 

A mining COMPANY intends to exploit a deposit by acquiring the property rights from an exploration company that has carried out the geological investigation of the deposit. After carrying out the technical-economic feasibility study, the summary of the main estimates is as follows: Reserves and annual production Exploitable reserves 10,000,000 t Annual production 2,000,000 t Investments Acquisition of mining rights 1,600 ThUS$. Facilities, equipment and infrastructure 2,000 ThUS$ 2,000 ThUS$. Working capital or working capital ThUS$400 ThUS$ 400 Depreciable or amortising assets ThUS$4,000 Residual value ThUS$ 400 Operating costs 2,400 US$/t Ore sales price 4,000 US$/t Depletion Factor 30% Taxable Base Corporate Tax 35% Taxable Base The company requires a 20% profitability for its projects, so we wish to study the following possible situations: Project profitability when depreciations are calculated, first, by the linear method and second, by the double declining balance method. 2. The effect of financial leverage when the resources borrowed amount to 50% of the total investment, at a capital interest rate of 10%.

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